Both thedollarand capital market benchmarks are so close to meaningful trend shifts that you can almost feel the heat from the major breakouts that would set the markets alight. With the countdown to NFPs ticking away and the return of European financial stability concerns, it would seem that we have the perfect storm for that critical move. However, there is a problem: unfavorable market conditions. FX traders are no doubt anxious for a meaningful drive, and the high-probability technical patterns that have developed across key dollar- and sentiment-backed benchmarks are feeding expectations. On the risk front, the S&P 500 (which has done its best to avoid the retrenchment that other asset classes have submitted to) dropped back below 1400 and now stands at a 1390-floor that would represent a significant step towards reversal if it fell. EURUSD is the most prominent dollar representative. As the most liquid pair in the market, a break below 1.3000 carries more weight as a fundamental swing rather than an erratic, volatility-derived move.

Ultimately, taking that decisive step to usher ina new thematic trend requires the conviction (or fear) of the masses. That will be hard to do over the final 24 hours of this trading week. While the currency markets are trading, much of the Western World’s capital markets will be closed for the Good Friday holiday. With much of the speculative world offline, we will certainly see a concentration of speculators trading what instruments they can; but it is the ‘investors’ that provide trend. To feed momentum – and in this scenario a bear trend – we need a steady cascade of sell orders at progressively lower levels. Without equities and other critical capital markets online, the impetus to deleverage to raise liquidity and divert capital to safe havens like the dollar will be naturally stunted.

That said, the same conditions that curb trend development also leverage volatility – a concentration of traders that are quick to jump onto fresh momentum are bound to skew things. For that reason, FX traders will need to be particularly careful with how they treat a post-NFPs marketreaction. The benchmark for high volatility will likely be heightened, so a larger deviation from the 205,000-payroll and 8.3 percent jobless rate consensus may be needed to shake things up. There is also the question of whether a significant improvement would be bullish or bearish for the dollar. As the market’s favored safe haven currency, a disappointment would lead to drop in capital markets and demand for the greenback (Treasuries). Yet, we have seen the dollar respond more actively to hawkish developments in monetary policy (no QE3, hike in 2013) than pure risk trends recently. But, that may be more a reflection of the lack of any true risk aversion drives so far this year.

Despite the improved perceptions of regional health after Greece won approval on its second bailout program and its private sector bond restructuring, medium-term issues between fiscal and economic health persist for much of the Euro Zone periphery. This past session, the financial media’s appetite for bloody headlines increased with fresh waves of trouble for Portugal and Spain. The fear is that the former country (already a bailout recipient) will need a ‘bridge’ as it tries to reenter the market next year. That concern was reinforced by news that some of Portugal’s municipalities (“town halls”) may need to restructure their debt. The greater threat though rests on Spain’s shoulders. Whether the issue is the countries’ banks real estate holdings, regional debt, Prime Minister Rajoy’s loosened deficit target – its troubles are “severe.”

Swiss Franc: Central Bank Forced to Buy Euros as 1.2000 Violated

On a day packed with volatility, the most remarkable development over the past 24 hours came from a franc-based pair. That doesn’t happen too often – especially with a pair that is artificially capped. Yet, it was exactly that manipulation that leveraged the importance ofthe EURCHF’s tumble Thursday. Since September, the SNB has fulfilled its vows to keep this critical pair above 1.2000. That seven-month trend ended yesterday with the euro’s market-wide tumble. The SNB reportedly spent €1Bln pushing the pair back above 1.2000 and they have another €9Bln to keep it up. That may not be enough. With the market only 10-15 pips from its floor, the SNB may need to activate a nuclear option.

Canadian Dollar Rallies after Best Employment Report Showing In Over 3 Years

The Canadian employment stats wouldn’t disappoint Thursday; but despite the free movement without NFPs to immediately curb speculative interest after the report, the loonie wouldn’t win any critical trend points. The 82,300 jobs added in March was the biggest single monthly increase since September 2008. That figure is further backed by solid permanent job numbers as well as a drop in the jobless rate to 7.2 percent. Yet, neither USDCAD nor CADJPY could break their respective congestion patterns. AUDCAD couldn’t even extend an existing trend.

One of the most disappointing ‘high profile’ pieces of event risk in the FX world is the Bank of England’s rate decision. Not only is the central bank’s moves known well ahead of time (effective transparency), but their custom of withholding commentary when no changes are taken leaves speculators walking away with absolutely nothing to work with. Nevertheless, traders will persevere. With the most recent 50 billion sterling worked into the bond program and a fresh round of data (including Q1 GDP) available for next months’ decision, there is plenty to speculate on.

We knew that this would be a prominent and persistent threat to Japanese policy officials’ efforts to devalue their currency. Risk aversion is the catalyst forcarry trade deleveraging. For the yen to depreciate, carry demand has to hold steady (if not strengthen). With the S&P 500 in an exaggerated bull trend this year without a meaningful correction and signs that central banks are pulling back on stimulus, it is only a matter of time before there is a natural risk (and carry retracement). We had a taste of that Thursday, but a bigger move still awaits.

Gold Advances as Crisis Concerns Raise Demand for Alternative Reserve

The greenback managed a third consecutive rally through this past session, but the momentum behind the move is flagging. The restraint allowed gold’s more concerted effort to produce a bullish close of its own. News that credit rating agency Egan Jones (the first to downgrade the United State’s top rating) lowered the US measure again to AA boosts the alternative-store-of-wealth and anti-inflation appeal that the metal represents. However, the real catalyst for this drive was the renewed fear surrounding Europe’s financial stress. Gold is still a glut for options.

DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.